Tuesday, November 12, 2013

JOHANNESBURG (Reuters) – South Africa’s state pension fund is opposing the takeover of drugs firm Adcock Ingram by Chile’s CFR Pharmaceutical because of concerns about foreign control and the share component of the deal, a source familiar with the fund’s thinking said on Tuesday.

The state-owned Public Investment Corporation (PIC), Adcock’s largest shareholder with a 14 percent direct stake, has only given vague reasons for its rejection of the $ 1.3 billion deal, saying it was not in its “best interest”.

However, the source, who asked not be identified because the matter is private, said the PIC was concerned about a South African company falling into foreign hands, citing uncertainty about the type of management CFR would bring.

“If we think management can’t take this company forward, let’s change the management, not ownership,” the source said.

CFR threatened this week to pull out if it does not win support from the PIC, whose objections are symptomatic of the ambivalence in Pretoria towards foreign investment and ownership in Africa’s biggest economy. .

Although South Africa desperately needs foreign capital and expertise, Pretoria has a history of sinking cross-border deals if they are seen to threaten initiatives designed to raise the living standards of the black majority.

Last year, it rejected a $ 385 million bid by South Korea’s KT Corp for a stake in fixed-line operator Telkom, and in 2011 its labour and local supplier demands almost scuppered Wal-Mart’s $ 2.4 billion takeover of retailer Massmart.

Santiago-based CFR said in September it would pay 12.6 billion rand in cash and shares for South Africa’s second-largest drug maker, which also supplies equipment to public hospitals and HIV/AIDS antiretroviral drugs.

The deal amounts to as much as 47.29 rand in cash per Adcock share and up to 15.44 new CFR shares per Adcock share.

However, the source said the PIC also objected to the share component of the deal.

“CFR’s shares are way overvalued. I believe we are being short-changed here,” the source added.

Adcock has underperformed operationally and in the stock market, with some shareholders blaming management for failing to keep up with larger rival Aspen Pharmacare, which has made an aggressive push into overseas markets.